Keep asking: Why is your tax cut so small?

By Harry Newman and Stan Veliotis

Jun 20, 2018 | 5:45 PM

Why is your tax cut so small? (cabania / Getty Images / iStockphoto)

Last month, House Ways & Means Chair Brady said he is working closely with President Trump to make December’s tax cuts for individuals permanent before November’s election. But before deciding on whether that makes sense, ask yourself whether you deserve something better than what you got in that tax cut.

If you are one of many people struggling to make ends meet, imagine what would happen if you obtained a $25,000 loan. It would help you initially, but will struggle again as you try to repay the loan.

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Now consider the increase in your take-home pay as a result of December’s $1.5 trillion tax cut. House Speaker Paul Ryan broadcasted the power of the tax cut by tweeting about a high-school secretary’s $1.50 increase per pay period, which would more than cover her Costco membership fee.

Even if your take-home paycheck increases by, say, $25, this amount is tiny in comparison to the rich. The top 0.1% — annually making over $3.6 million — will average an estimated annual $85,640 tax cut. This does not include the billions saved by corporations, whose tax rate is permanently cut roughly in half, along with drastic reductions in overseas earnings tax.

If the rich had not been given such a large tax cut, we estimate your cut would be two or three times larger. For example, if you eliminate the cut for the top 10%, everyone else’s cut would be expected to be over twice as much.

Eliminating the cut for the top 20% could lead to a more than tripling of the average cut. If you did receive a tax cut, instead of proudly saying, “look at the size of my tax cut,” you should ask “why is my tax cut so small?”

In the movie “Braveheart,” William Wallace, in fighting for the commoner, says “You’re so concerned with squabbling for the scraps from Longshank’s table that you’ve missed your God-given right to something better.” Instead of settling for crumbs, you should have expected more.

There is not enough evidence that the rich and corporations will reinvest their tax savings in job-creating endeavors. While some corporations have paid one time worker bonuses, many are dispensing billions of dollars in buying back their own stock.

Returning to the $25,000 loan example, consider what happens if you cannot pay it back: The bank could ruin your credit, take your house or even push you into bankruptcy. At this point you may be feeling relieved that you do not have to pay back your tax savings, because it is the government that is borrowing to pay for December’s tax cut. However, you will indirectly be helping to pay this back.

The government will have to cut costs because the tax cut increases the federal deficits enormously over the next decade, adding to $20 trillion it already owes and the hundreds of billions of dollars of annual interest. The expected cost cuts will likely be on the backs of the working and other poor in the form of reductions in food stamps, Medicaid and the Social Security and Medicare entitlements you earned by paying taxes during your long work lives.

Indeed, Ryan concedes that congressional Republicans will aim to reduce spending on federal health care and anti-poverty programs, citing the need to reduce America’s deficit. Reductions in these benefits will have no significant impact on the rich, but they certainly will affect the poor, middle class, and elderly. And the cost cuts that are coming must cover not just the trivial part of your tax cut but that massive part that went to the rich.

So the next time you rejoice over your increased take-home pay from the tax cut, just remember the payback on your measly increase is coming due. And the payback will be that much greater if the tax cuts are made permanent.

Newman is a professor of accounting and taxation and Veliotis is an associate professor of accounting and taxation at Fordham’s Gabelli School of Business.